Quigley (Liquidator) v Minesite Maintenance Pty Ltd, in the matter of Perthmetro Pty Ltd (in liq)
[2018] FCA 316
•14 March 2018
FEDERAL COURT OF AUSTRALIA
Quigley (Liquidator) v Minesite Maintenance Pty Ltd, in the matter of Perthmetro Pty Ltd (in liq) [2018] FCA 316
File number(s): WAD 457 of 2016 Judge(s): SIOPIS J Date of judgment: 14 March 2018 Catchwords: CORPORATIONS – the liquidator claimed that payments made by a company whilst insolvent were unfair preferences – defence under s 588FG(2) of the Corporations Act 2001 (Cth) – whether the defendant discharged onus of establishing the elements of the defence. Legislation: Corporations Act 2001 (Cth) ss 588FE, 588FF(1), 588FG(2), 588FG(2)(a), 588FG(2)(b) Cases cited: Williams v Peters [2010] 1 Qd R 475
Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801
Browne v Dunn (1893) 6 R 67
Date of hearing: 18 April 2017 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 76 Counsel for the Plaintiff: Mr DK Cooper Solicitor for the Plaintiff: Thompson Downey Cooper Counsel for the Defendant: Mr FA Robertson Solicitor for the Defendant: Fort Knox Legal ORDERS
WAD 457 of 2016 IN THE MATTER OF PERTHMETRO PTY LTD (IN LIQUIDATION) (ACN 077 480 614) BETWEEN: PETER RAYMOND QUIGLEY IN HIS CAPACITY AS LIQUIDATOR OF PERTHMETRO PTY LTD (IN LIQUIDATION) (ACN 077 480 614)
Plaintiff
AND: MINESITE MAINTENANCE PTY LTD (ACN 009 180 367)
Defendant
JUDGE:
SIOPIS J
DATE OF ORDER:
14 MARCH 2018
THE COURT ORDERS THAT:
1.By 4:00 pm on 19 March 2018:
(a)the parties are to file a minute of orders which reflects the judgment of the Court, or
(b)alternatively, each party is to file a minute of orders which in their view reflects the judgment of the Court.
2.By 4:00 pm on 19 March 2018, each party is to file submissions not exceeding 2 pages on the issue of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
SIOPIS J:
This is a claim by the plaintiff, Mr Peter Quigley as liquidator of Perthmetro Pty Ltd (in liquidation) (Perthmetro), against the defendant, Minesite Maintenance Pty Ltd, pursuant to s 588FF(1) of the Corporations Act 2001 (Cth). The plaintiff seeks an order that the defendant pay a total of $10,400 to him as liquidator, together with the liquidator’s costs. The sum of $10,400 represents payments which were made by Perthmetro to the defendant which the plaintiff alleges were unfair preferences.
Section 588FF(1)(a) of the Corporations Act provides that an order of the nature sought by the plaintiff may be made if the Court is satisfied that a transaction of the insolvent company is voidable because of s 588FE of the Corporations Act.
Section 588FE(2) of the Corporations Act relevantly provides that a transaction is voidable if:
(a)it is an insolvent transaction of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it:
(i)during the 6 months ending on the relation-back day; or
(ii)after that day but on or before the day when the winding up began.
The definition of “insolvent transaction” is to be found in s 588FC of the Corporations Act which relevantly provides as follows:
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a)any of the following happens at a time when the company is insolvent:
(i)the transaction is entered into; or
(ii)an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b)the company becomes insolvent because of, or because of matters including:
(i)entering into the transaction; or
(ii)a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
Section 588FA(1) of the Corporations Act defines an “unfair preference” in the following terms:
A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
THE EVIDENCE
Each party read affidavit evidence at the hearing.
Mr Quigley read his affidavit dated 30 September 2016 and the affidavit of Mr Damian Cooper dated 16 March 2017.
The defendant read the affidavit of Mrs Joyce Hunter dated 17 November 2016 and the affidavit of Mr Charles Hunter dated 22 November 2016. Mrs Hunter is, and was, at all material times, the office manager of the defendant. Mr Hunter is, and was, at all material times, a director of the defendant. Mr Hunter’s affidavit does not add anything further to Mrs Hunter’s evidence. I will deal with this evidence in more detail later in these reasons for judgment.
Mr Quigley was cross-examined briefly on his affidavit. There was no cross‑examination of any of the other deponents.
BACKGROUND
There was a considerable degree of common ground between the parties. As a consequence, there were only three primary issues which were in dispute between the parties. I will deal with those issues later in these reasons for judgment.
I set out below the uncontested facts.
Prior to Perthmetro going into liquidation on 1 October 2013, it carried on business as a builder of commercial buildings.
At all material times, the defendant carried on business under the name “Boddington Crane Hire” providing lifting services to mining and construction companies.
During the period May to October 2012, Perthmetro engaged the defendant to provide lifting services. The defendant issued invoices to Perthmetro in respect of the services provided. The invoices provided for payment within 30 days.
The invoices issued by the defendant in respect of services provided in each of the months of May, June and July 2012 were for the amounts of $9,051.37, $15,085.62 and $14,582.77 respectively.
By 9 September 2012, the total amount owing to the defendant by Perthmetro, following a credit of $3,300, was $35,419.76.
On 12 September 2012, Perthmetro paid the amount of $24,136.99, being the total of the two liabilities incurred by Perthmetro in May and June 2012.
On 30 September 2012 and 4 October 2012, Perthmetro incurred further liabilities to the defendant in the amounts of $15,839.80 and $5,154.25 respectively.
The total amount owing to the defendant by Perthmetro in respect of outstanding invoices issued by the defendant as at 4 October 2012 was $32,276.82.
On 21 November 2012, Perthmetro reduced the balance owing by the payment of $14,582.77 which was the amount of the liability incurred by Perthmetro in July 2012. The payment was, therefore, about three months late. Following the payment of that invoice the balance owing to the defendant in respect of the other liabilities was $17,694.05. From 21 November 2012 to 22 March 2013, Perthmetro made no further payments to the defendant.
By 22 March 2013, therefore, Perthmetro had for four months not made a payment of any sum to reduce its liability of $17,694.05 to the defendant.
On that day, there was a discussion between Mrs Hunter, on behalf of the defendant, and Mr Tit Seng Wong, on behalf of Perthmetro, about the payment of the outstanding amount of $17,694.05 to the defendant.
Following the discussion, in an email dated 22 March 2013 addressed to Mrs Hunter and dispatched at 12:37 pm, Mr Wong stated:
Following our discussion this afternoon, we propose to repay the amount outstanding of $17,694.05 by 13 weekly payments of $1,300.00 each and a final payment of $794.05 commencing next Wednesday 27th March 2013.
We look forward to your acceptance in due course.
By an email dated 22 March 2013, addressed to Mr Wong and dispatched at 1:21 pm, Mrs Hunter stated:
I agree with your proposal for payments over 13 weeks, commencing 27 March 2013.
Perthmetro made weekly payments of $1,300 generally in accordance with the agreed payment schedule on 26 March 2013, 4 April 2013 and 10 April 2013. The payment on 4 April was one day late.
However, Perthmetro failed to pay the $1,300 payment on 17 April 2013 and did not make another payment of $1,300 until 23 May 2013. On 12 June 2013, Perthmetro made a payment of $2,600. Between 12 June 2013 and 16 July 2013, Perthmetro made no further payments.
On 16 July 2013, Mr Wong sent an email to the defendant which stated:
Please be advised that the payment due for this and last week’s arrangement could not be made due to a collection that is being delayed. However this is now resolved and payments are expected to recommence on Tuesday 23rd July.
PerthMetro Pty Ltd sincerely regrets and apologises for any inconvenience caused.
On 23 July 2013, Perthmetro paid the defendant the sum of $3,900.
Perthmetro did not make any further payments to the defendant thereafter.
On 1 October 2013, the plaintiff was appointed liquidator by special resolution of members of Perthmetro pursuant to s 491 of the Corporations Act.
On 30 August 2016, the plaintiff demanded that the defendant pay to him the sum of $10,400 on the basis that that sum comprised sums paid as an unfair preference pursuant to s 588FA of the Corporations Act. The sum of $10,400 comprised the following payments made on the following dates by Perthmetro to the defendant:
Date Amount 4/4/2013 1,300.00 10/4/2013 1,300.00 23/5/2013 1,300.00 12/6/2013 2,600.00 23/7/2013 3,900.00 $10,400.00
The defendant refused to make the payment demanded by the plaintiff and the plaintiff commenced proceedings in this Court for the recovery of the sum of $10,400.
THE ISSUES
For the plaintiff to succeed it will be necessary for the plaintiff to establish the following elements of his claim:
(a)Perthmetro is being wound up;
(b)each of the impugned payments was a transaction entered into during the six months ending on the relation-back day;
(c)each of the impugned payments was a transaction entered into when Perthmetro was insolvent;
(d)each of the impugned payments was made in respect of a debt owed by Perthmetro to the defendant;
(e)the debt was unsecured;
(f)each of the impugned payments resulted in the defendant receiving more than it would have in a winding up.
Prior to the hearing, the defendant conceded all the elements in the preceding paragraph other than those at subpara (b) and subpara (c).
It followed that there were two remaining issues to be resolved in respect of the matters to be established for the plaintiff to succeed under s 588FF of the Corporations Act. I deal with each of these issues below.
Whether each of the payments was a transaction entered into during the six months ending on the relation-back day
The question is whether each of the five impugned payments comprised a transaction which was entered into during the six months ending on the relation-back day.
The “relation-back day” was defined in s 9 of the Corporations Act at the relevant time to mean, the day on which the winding up is taken to have begun because of Div 1A of Pt 5.6 of the Corporations Act.
As mentioned, Perthmetro was wound up voluntarily by special resolution. Section 513B(e), which is within Div 1A of Pt 5.6 of the Corporations Act, provides that the winding up, in this case, is taken to have begun on the day on which the resolution was passed. The special resolution was passed on 1 October 2013. The period of six months prior to the date of the relation-back day, therefore, commenced on 2 April 2013.
“Transaction” is defined in s 9 of the Corporations Act to include “a payment made by the body”. In this case, it means a payment made by Perthmetro. Accordingly, on the basis of that definition, each of the impugned payments made by Perthmetro to the defendant is “a transaction”.
For each payment to be a transaction entered into within the relevant six month period, each payment would have to have been made between 2 April 2013 and 1 October 2013. The evidence shows that the first impugned payment was made on 4 April 2013 and the last impugned payment was made on 23 July 2013.
Accordingly, each of the five impugned payments was made on a date which fell within the requisite period of 2 April 2013 to 1 October 2013.
It follows that the plaintiff has satisfied the requirement that each of the impugned payments was a transaction entered into during the six months ending on the relation-back day.
Whether the company was insolvent at the time of each of the payments
The next contested issue was whether Perthmetro was insolvent at the time that each of the payments was made to the defendant.
As mentioned, the earliest of the impugned payments was made on 4 April 2013. The question, therefore, is whether Perthmetro was insolvent by no later than 4 April 2013 and remained so until 23 July 2013, which is the date of the fifth payment.
The plaintiff prepared an analysis of the solvency position of Perthmetro as at 31 March 2013. The analysis revealed that as at 31 March 2013, there was a deficiency of funds available to meet debts due and payable in the sum of $2,731,064. The defendant sought to challenge the analysis on the basis that the plaintiff had not had regard to the assets of Perthmetro that may have been available as at 31 March 2013 to raise further funds for Perthmetro.
Mr Quigley was cross-examined on the analysis of solvency. In cross‑examination, Mr Quigley confirmed that in assessing the deficiency in funds, he had based the analysis not just on the then available cash resources but had also taken into account whether there were other ways in which the company could have generated funds such as drawing down on credit facilities, raising equity, selling assets or using assets to secure loans. Mr Quigley confirmed that there was no evidence in the company’s documentation that there were any such assets available to Perthmetro as at 31 March 2013. The defendant led no evidence that there were any such assets.
In those circumstances, I accept Mr Quigley’s evidence and find that there were no other assets available to Perthmetro as at 31 March 2013 to sell or otherwise to be used as a means of raising monies sufficient to meet its debts as and when they fell due.
I, therefore, find that as at 31 March 2013, Perthmetro was hopelessly insolvent.
Section 588E(3) of the Corporations Act provides relevantly:
If:
(a)the company is being wound up; and
(b)it is proved…that the company was insolvent at a particular time during the 12 months ending on the relation-back day;
it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.
The defendant led no evidence that the financial position of Perthmetro had changed between 31 March 2013 and the date of the final payment, namely, 23 July 2013. Accordingly, on the operation of the presumption in s 588E(3), Perthmetro is presumed to have been insolvent on the date that each of the impugned payments was made.
Accordingly, I find that each of the impugned payments was a transaction entered into at a time when Perthmetro was insolvent.
It follows that the plaintiff has satisfied this element of the claim under s 588FE of the Corporations Act and, subject to the defence which has been raised by the defendant, the plaintiff would be entitled to the relief under s 588FF(1) which the plaintiff has claimed.
I now turn to consider the defence.
The defence under s 588FG(2) of the Corporations Act
The defendant relied upon the defence in s 588FG(2).
Section 588FG(2) of the Corporations Act provides:
A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:
(a)the person became a party to the transaction in good faith; and
(b)at the time when the person became such a party:
(i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and
(c)the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.
It was, therefore, incumbent upon the defendant to prove the matters referred to in s 588FG(2)(a), (b) and (c) of the Corporations Act.
The onus is on the defendant to establish the elements of the defence in s 588FG(2) of the Corporations Act. As Muir JA observed in Williams v Peters [2010] 1 Qd R 475 at [57]:
The test is a demanding one, as the respondent is required to prove a negative. The matters to be established are to be determined by viewing the facts and circumstances as they unfolded at the time, without the benefit of hindsight in the commercial context of the transaction as a whole.
(Footnotes omitted.)
The elements of the test in s 588FG(2)(a) and (c) were not in issue between the parties.
As to s 588FG(2)(b) of the Corporations Act, the defendant must establish that at the time that it became a party to “the transaction” in question (namely, each payment) it had no reasonable grounds for suspecting that the company was insolvent at the time or would become insolvent. The defendant is also required to prove that a reasonable person in the defendant’s circumstances would have had no such grounds for so suspecting.
The relevant mental state which is referred to in each of s 588FG(2)(b)(i) and (b)(ii) is that of “suspecting” or “suspicion”.
In Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801 (Dean-Willcocks), Barrett J observed at [12]-[13]:
12The relevant concept of “suspecting” – or “suspicion” – is that referred to by Kitto J in Queensland Bacon Pty Ltd v Rees. It is more than idle wondering. It is a positive feeling of actual apprehension or mistrust without sufficient evidence.
13It is important to emphasise that the relevant suspicion is one of actual and existing insolvency, as distinct from impending or potential insolvency. That, as the Full Court of the Supreme Court of South Australia pointed out in Sheahan v Fabienne Pty Ltd, is something that was made clear in Queensland Bacon Pty Ltd v Rees.
(References omitted.)
There is, obviously, a significant difference in the mental state embodied in the concept of “knowing” that a company is insolvent; and “suspecting” that a company is insolvent. It is the latter mental state which is relevant for the purposes of the defence in s 588FG(2)(b).
As mentioned, it is necessary for a defendant to prove that there were no reasonable grounds for suspecting that the company was insolvent and, in addition, that a reasonable person in the defendant’s circumstances would have had no such grounds for so suspecting. Thus, it is not sufficient for a defendant to prove that the relevant officer of the defendant subjectively did not suspect that at the time of entering into the impugned transaction that the company was insolvent. Still less would it avail a defendant to prove that at the time of entering into the impugned transaction the relevant officer of the defendant did not know that the company was insolvent.
It follows, therefore, that the defendant in this case has failed to discharge the statutory onus because the evidence of Mrs Hunter is that, based on a number of identified circumstances, she did not know at the time that the impugned payments were made to the defendant that Perthmetro was insolvent. The identified circumstances are:
(a)After Perthmetro had defaulted on the payment of the fourth weekly instalment, Mr Wong, the financial controller of Perthmetro, told Mrs Hunter that the reason for Perthmetro falling behind on the weekly payments was that Perthmetro was waiting on payments from MCC Mining; and Mrs Hunter believed Mr Wong’s explanation to be reasonable and acceptable because MCC Mining had a reputation for late payments.
(b)After the default in making the fourth weekly payment, Perthmetro resumed making payments.
(c)Temporary cash-flow problems in the construction industry was a commercial reality and it was not uncommon for the defendant to extend time and provide flexibility regarding credit terms for large customer accounts.
(d)In Mr Wong’s email of 16 July 2013 (see [27] above), he referred to Perthmetro having collection problems.
There is also a paragraph (para 10), in Mrs Hunter’s affidavit in which she said that she believed that on the basis of the evidence in [64] above, the defendant had established the elements of its defence. I have placed no weight on this paragraph because it purports to draw conclusions of law which are, in any event, erroneous.
The plaintiff did not cross-examine Mrs Hunter on her evidence contending that, on its face, the evidence fell short of discharging the onus of proof on the defendant.
The defendant contended that because the plaintiff did not cross-examine Mrs Hunter, the Court should apply the rule in Browne v Dunn (1893) 6 R 67 (Browne v Dunn), and find that it had established the elements of its defence.
In my view, this is not a case where the rule in Browne v Dunn has been infringed. The plaintiff does not make any unfair contention about Mrs Hunter’s evidence without having cross-examined Mrs Hunter. Thus, the plaintiff does not challenge Mrs Hunter’s evidence in the sense that the plaintiff is asking the Court not to accept the truth of Mrs Hunter’s evidence. Rather, the plaintiff’s contention is simply that, accepting the truth of Mrs Hunter’s evidence, the defendant has failed to discharge its onus to establish the elements of the defence in s 588FG(2). This does not involve any unfairness, and, as I have said, does not infringe the rule in Browne v Dunn.
In any event, the defendant cannot complain of any unfairness in the plaintiff’s contention that it did not discharge the onus because this contention was made in the plaintiff’s outline of submissions filed before the commencement of the trial.
Further, the defendant cannot, in any event, succeed in its defence because, in my view, the defendant has failed to establish, as required by s 588FG(2)(b)(ii), that a reasonable person in the defendant’s circumstances would not have had grounds for suspecting that the company was insolvent. As mentioned at [57] above, this is an assessment which is not to be made in hindsight. Further, the “reasonable person” referred to in s 588FG(2)(b)(ii) is a “reasonable business person” (Dean-Willcocks at [11]).
A reasonable person in the defendant’s circumstances would, in my view, have had grounds for suspecting that Perthmetro was insolvent by 22 March 2013 when the defendant and Perthmetro entered into the payment arrangement.
By that time, Perthmetro had not made any payment for four months in reduction of the relatively modest sum owing to the defendant of $17,694.05. That amount included an amount of $12,539.80 that remained outstanding in respect of services supplied and invoiced in September 2012 and so comprised a debt which had not been paid in full for almost five months after the due date for payment. What, in my view, is significant, is that when approached by the defendant in respect of the payment of the outstanding debt, Perthmetro was only able to make an offer to pay off the amount outstanding by instalments of no more than $1,300 spread over 13 weeks and a final payment of $794.05.
In my view, a reasonable business person in the circumstances of the defendant, would have suspected that the reason why Perthmetro could not afford to pay more than $1,300 per week spread over 13 weeks, after it had not paid anything to reduce the outstanding balance of $17,694.05 for four months, was not that Perthmetro was experiencing short term cash‑flow problems, but that the company was in a position where it was unable to pay its debts as and when they fell due.
Accordingly, in my view, the defendant has failed to establish the defence under s 588FG(2).
There will be judgment in favour of the plaintiff.
I will hear the parties on costs.
I certify that the preceding seventy‑six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 14 March 2018
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